I’m always keen to draw on the wisdom of legendary investor Warren Buffett for some inspiration. After all, the ‘Oracle of Omaha’ has built his net worth comfortably above $100bn. And like many, he started out with just a small sum.
During his time as Berkshire Hathaway CEO, he’s generated an average annual return of around 20% for shareholders. And in the last 12 months, the stock has risen an impressive 30%.
So with his conglomerate experiencing this success, I think it’s time I attempted to replicate some of Buffett’s achievements for my own portfolio.
While it’s unlikely I’ll reach his level of success, if I had to start today, here are the methods I’d use today to build wealth.
Playing the long game
In my opinion, the most important one I could adopt would be to take a long-term approach. Building wealth is not a process that happens overnight. As has been proven over and over again, taking a long-term view of investing is the best way to reap the rewards of the stock market.
As a Fool, I know this. And with every investment I buy, I ask myself if I’ll feel comfortable still owning the stock in 10 years’ time. Volatility in the stock market is unavoidable. However, short-term lulls are ironed out in the long run.
Invest on a regular basis
The next piece of advice I’d plan to pinch from Buffett is to invest regularly. Putting money aside and investing it on a consistent basis is key to growing a savings pot.
By doing this, I’d benefit from the power of compounding. Buffett has referred to the power of this method on numerous occasions. He’s said compound interest has been a key factor behind his wealth generation.
By doing this, I’d also benefit from ‘pound cost averaging’, which essentially balances out the price I buy at.
Be ready
Like Buffett, I’d also have to be alert. He’s said we should “be greedy when others are fearful”. And this means when opportunities present themselves in the stock market to buy high-quality companies for a reduced price, I must be there to act.
The large volatility in the market in the last few years has deterred investors from investing their cash. But I’ve used it as a chance to build out my portfolio with companies I see providing me with some healthy returns in the years to come. Down over 30% from its pre-Covid levels, Lloyds is a prime example of this. Within the last few months, I’ve also opened positions in Barclays and Legal & General.
Buffett used this method in the global financial crash of 2008 when he bought a host of companies at slashed prices.
The plan
It must be noted that replicating the methods of Buffett is easier said than done. I don’t have his vast resources, of course. However, by targeting high-quality stocks that I’m comfortable holding for the long run, and by topping up my pot on a consistent basis, I’m fairly confident I could build wealth for times ahead.
